SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 33-80961-NY
LAMINAIRE CORPORATION
(Exact name of small business in its charter)
Delaware 22-2312917
(State or of incorporation) (I.R.S. Employer Identification No.)
960 East Hazelwood Ave. Rahway, NJ 07065
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 732-381-8200
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001;
Redeemable Warrants
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $6,028,993. The
aggregate market value of common voting stock held by non-affiliates of the
Issuer was approximately $424,079 computed by reference to the last sale price
at which the stock was sold on December 31, 1998 as reported by Nasdaq. As of
December 31, 1998, 3,855,267 shares of common stock and 1,725,000 redeemable
warrants were outstanding.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Laminaire Corporation ("Laminaire" or the "Company"), formerly Thermo-Mizer
Environmental Corp., was founded in 1978 and, until October 1997, was engaged in
various aspects of the energy conservation and environmental control businesses.
Laminaire reincorporated in Delaware in October 1994, at which time it changed
its name from Thermo Engineering, Inc. to Thermo-Mizer Environmental Corp. The
Company completed an initial public offering ("IPO") of its common stock and
redeemable warrants in March 1996.
Following the completion of its IPO, the Company implemented a strategy
designed to (i) enter the markets that appeared to be created or expanded by the
adoption of amendments to the Clean Air Act and (ii) introduce new, more
advanced versions of its microprocessor based product line used to monitor and
control a wide variety of environmental conditions. These efforts ultimately
required a substantially greater amount of time and resources than initially
anticipated. These efforts resulted in ongoing cash flow deficiencies and
operating losses, making a change in the Company's direction and focus
necessary. The Company adopted a strategy of seeking growth and profitability by
acquiring companies in related markets. In October 1997, the Company completed
the first step in that strategy by acquiring Laminaire Corporation ("Old
Laminaire"), a New Jersey Corporation. Old Laminaire, located in Rahway, New
Jersey, was founded in 1964 and is a manufacturer and distributor of cleanroom
products and also assembles a variety of electronic circuit boards. This
acquisition marked a fundamental change in the way that the Company's business
is conducted by making it a product-driven business rather than a systems-driven
business. The Company changed its name from Thermo-Mizer Environmental Corp. to
Laminaire Corporation in June 1998.
Following the acquisition of Old Laminaire, Laminaire operated with four
business groups - Cleanroom Manufacturing ("CM"), Cleanroom Distribution ("CD"),
Electronic Manufacturing ("EM") and Control Systems ("TCS"). TCS consisted of
the entire business and operations of the Company prior to the acquisition of
Old Laminaire. The Company decided to discontinue TCS in June 1998 because of
ongoing operating losses and the estimated requirements for future investment in
research and development were not deemed a prudent use of the Company's limited
resources. The Company also replaced its president with a senior executive from
Old Laminaire.
Prior to the acquisition of Old Laminaire, all of the Company's revenues
and operations related to and were generated by TCS. The Company has restated
its prior financial statements and information to present the operating results
of TCS as a discontinued operation. Following the discontinuance of TCS, the
Company is positioned to compete in niche markets on the basis of service and a
willingness to customize. As a rule, it is not competing based on technology
requiring ongoing Company-funded research. Management believes that controls are
in place to minimize the risk of incurring significant losses on individual
contracts or projects, although no assurances can be given that no such losses
will occur.
eSafety
In March 1999, the Company announced the formation of a new Internet-based
subsidiary that will be named eSafety. eSafety will a business-to-business
E-Commerce solution for distributors and users of disposable safety equipment
and garments for all applications. eSafety will seek to include
2
<PAGE>
products from a wide array of manufacturers on its site and will incorporate
state-of-the-art technology and software. Its principal strategy consists of
boosting the Company's overall sales without corresponding increases in
inventory levels. It will attempt to enter into agreements with vendors to drop
ship purchased items directly to customers. In addition, eSafety will employ
aggressive Internet-based marketing campaigns. The target date to open the new
site is the summer of 1999. The Company, which has engaged a leading developer
of E-Commerce software and marketing tools to assist it in this effort, intends
to commit a significant portion of its resources to the formation and
development of eSafety.
Products
Lamimaire's principal product groups are:
Cleanroom Manufacturing - CM's principal products are:
Horizontal Laminar Flow Work Stations:
CS Series Console Slimline Workstation - The purpose of this unit is to provide
a Class 100 horizontal laminar flow environment within a work chamber. Class 100
is an industry standard under which there can be no more than 100 particles of
material that are greater than .5 microns within one cubic foot of air. A
laminar (also known as a unidirectional) flow environment is one in which air
flows in a single pass in a single direction in parallel streamlines through an
air device or clean zone. This unit is a freestanding self-contained device that
functions effectively in controlled and uncontrolled areas wherever clean air is
a requirement. The unit can fit through standard doorways, facilitating easy
installation. Applications include but are not limited to optical assembly,
pharmaceutical preparation, critical sample preparation, microelectronic
fabrication, assembly and inspection, and food processing. This device draws in
ambient air through a first stage prefilter and then passes this air through a
99.99% efficient High Efficiency Particulate Air ("HEPA") filter that filters
out particles down to 0.3 microns.
C Series Console Workstation - Similar in function, purpose, use and design to
the CS Series, this unit offers full clearance below a work surface to enable
installation of sinks, tanks, plumbing, or any special process equipment. This
design requires simple disassembly of the tabletop to fit into standard doorways
and also comes in a completely separate isolated tabletop version that is suited
to microscope inspection processes in which vibration is a concern.
TS Series Table Mount Workstation - This unit, which is designed to be mounted
on an existing workbench or optional base cabinet, has the same function,
purpose and applications as the CS Series unit.
Series Table Mount Workstation - This unit, which is designed to be mounted on
an existing workbench or optional base cabinet, has the same function, purpose
and applications as the CS Series unit.
NFE Negative Flow Exhausting Work Station - This unit is designed to contain
contaminated air in a work chamber by removing gross particulate generated
within the work chamber through a process in which air is drawn from the outside
environment and across the work surface. The air is then passed through an
initial prefilter, and finally through a HEPA filter at the top of the unit. The
air is then released back to the outside area. Applications include powder
filling and handling, critical sample preparation, and cosmetic weighing.
3
<PAGE>
WM and CRT Series Wall Modules and Cleanroom Tunnels - These units are designed
to create clean zones of Class 100 laminar airflow. Multiple units can be joined
together to create horizontal flow tunnels. Class 100 airflow is totally
displaced throughout the entire tunnel from wall to wall, ceiling to floor,
exiting the open end and carrying out entrained particles. These units are used
in microelectronic assembly, repair, inspection and fabrication processes and
pharmaceutical manufacturing areas.
Vertical Laminar Flow Work Stations:
DWS Series Module on Frame and PPWS Wet Process Station - The purpose of this
unit is to provide a Class 100 vertical laminar flow environment within the work
chamber. A freestanding unit, typically installed over a process station, this
unit protects product from outside contamination within a work chamber. The
process stations can be of any type that require clean airflow. The PPWS wet
process stations, manufactured from stress relieved thermoplastics, are most
commonly installed under the units and can incorporate custom designed
operations with exhaust capabilities. Applications include microelectronic
assembly, inspection, and manufacturing, pharmaceutical processes, hybrid
manufacturing, laser research and development, optical assembly, and precision
engineering. When used in conjunction with a wet process station, applications
include etching and plating processes, semiconductor processing and biomedical
manufacturing.
Series Module on Frame and PPWS Wet Process Station - The purpose of this unit
is to provide a Class 100 vertical laminar flow environment within the work
chamber. A freestanding unit, typically installed over a process station, this
unit protects product from outside contamination within a work chamber. The
process stations can be of any type that require clean airflow. The PPWS wet
process stations, manufactured from stress relieved thermoplastics, are most
commonly installed under the units and can incorporate custom designed
operations with exhaust capabilities. Applications include microelectronic
assembly, inspection, and manufacturing, pharmaceutical processes, hybrid
manufacturing, laser research and development, optical assembly, and precision
engineering. When used in conjunction with a wet process station, applications
include etching and plating processes, semiconductor processing and biomedical
manufacturing.
R Series Recirculating Work Station - The purpose of this unit is to provide a
Class 100 vertical laminar flow environment within a work chamber and offer
recirculating capability to control against cross-contamination within the work
chamber. The laminar airflow is passed through a HEPA filter, down through a
perforated work surface prefiltered, and recirculated back through the entire
unit. The design allows for the addition of make-up air, and positive pressure
within the work chamber. Applications are similar to the DWS Series unit without
the PPWS.
E Series Exhausting Work Station - The purpose of this unit is to provide a
Class 100 vertical laminar flow environment within a work chamber and offer
exhausting capabilities. This unit is used when toxic odors and fumes are
present. The prefiltered laminar airflow is passed through a HEPA filter, down
through a perforated work surface, and exhausted out the top of the unit. A
remote exhaust system is required to maintain the correct air balance within the
unit. Applications are similar to those of the R Series unit.
4
<PAGE>
PVE Series Exhausting Work Station - The function and purpose of this unit are
similar to the E Series unit except that this unit is completely manufactured
from stress relieved thermoplastic which prevents corrosion, provides resistance
to acids and solvents and has non-conductive properties. It typically
incorporates custom designed operations with exhaust capabilities and can
accommodate the installation of sinks, special process tanks, heater baths,
ultrasonic tanks, and etching tanks. A remote exhaust system is required to
maintain the correct air balance within the unit. Applications include
microelectronic assembly and manufacturing, pharmaceutical processes, hybrid
manufacturing, laser research and development, etching and plating processes,
semiconductor processing and chemical cleaning operations.
F Series Exhausting Work Station - The function and purpose of this unit are
similar to the E Series unit except that this unit is completely manufactured
from stress relieved thermoplastic which prevents corrosion, provides resistance
to acids and solvents and has non-conductive properties. It typically
incorporates custom designed operations with exhaust capabilities and can
accommodate the installation of sinks, special process tanks, heater baths,
ultrasonic tanks, and etching tanks. A remote exhaust system is required to
maintain the correct air balance within the unit. Applications include
microelectronic assembly and manufacturing, pharmaceutical processes, hybrid
manufacturing, laser research and development, etching and plating processes,
semiconductor processing and chemical cleaning operations.
PFH Series Fume Exhaust Hood - The function, purpose, and applications of this
unit are to remove harmful odors and fumes from a work chamber. Properties of
this unit are similar to that of the PVE Series. Air is drawn through the front
opening, across the tabletop, and exhausted through adjustable baffles at the
rear of the hood and up to exhaust collars at the top of the unit.
Personnel Entry Air Showers:
ASA Series - This unit is designed to remove surface contamination from
personnel entering a clean zone or cleanroom. The unit incorporates high
velocity air nozzles, microprocessor technology, timed, controlled sequences,
and HEPA filtered air to provide the cleaning process. Applications include all
areas of industry where cleanrooms or clean zones are present, such as
automobile painting processes, semiconductor assembling and pharmaceutical
manufacturing.
LO-Pro Series Modules, Softwall and Hardwall Cleanroom Environments:
Lo-Pro(R) Module - The Lo-Pro filter-blower module is designed to act as an
independent HEPA filtered source of Class 100 ultra clean unidirectional air.
The unit can be placed in existing T-grid ceilings, tool enclosures, hanged from
a ceiling, in steel frame or support structures to provide clean work zones.
Uses include, but are not limited to, retrofit of existing spaces, cleanroom
construction, laser optics, microelectronic manufacturing, semiconductor process
tool equipment, pharmaceutical manufacturing, home infusion, aerospace
manufacturing, sterile filling and medical device manufacturing.
5
<PAGE>
Lo-Pro(R) PDE Softwall Portable Downflow Environment - This unit, which is
designed for areas where hard wall cleanroom construction would not be practical
or cost-effective, provides a HEPA filtered portable vertical laminar flow
environment. These units are pre-engineered for ceiling coverage of Lo-Pro
units, lights and ceiling tiles to provide product isolation or spot coverage
over process equipment. The units incorporate steel painted support structure on
locking casters enclosed by a vinyl curtain perimeter and provide a continuous
downflow purge of Class 100 airflow. Depending on the amount of ceiling filter
module coverage, Class 100,000 to Class 10 room classifications can be achieved.
Applications are similar to those of the Lo-Pro Series.
Lo-Pro(R) FDE Softwall Fixed Downflow Environment - The function, purpose and
uses are similar to the PDE Series unit, however this unit is provided with
fixed leveling mounts. Generally, these units are larger in design than those of
the PDE Series.
Lo-Pro(R) MDR Hardwall Cleanroom - The purpose of this unit is to provide a
vertical HEPA filtered airflow environment in a pre-fabricated hardwall
semi-permanent design. These units are pre-engineered for ceiling coverage of
Lo-Pro units, lights and ceiling tiles. The MDR features vinyl covered wall
panels, pre-hung doors, low side wall return, aluminum T-grid ceiling
suspension, windows and HVAC (option) to create Class 100,000 to Class 10 room
classifications. Applications are the same as the PDE and FDE Series units.
CM sells its products through its own salesmen, augmented by independent
sales representatives. It plans to increase its use of independent sales
representatives in 1999 and will offer attractive commission plans to achieve
this goal. It competes on the basis of its reputation for timely deliveries and
its ability to customize products to meet specific customer requirements. It
believes that its principal competitors consist of a variety privately held
companies, none of which have a significant segment of the overall marketplace.
Cleanroom Distribution - CD sells a large variety of disposable items, such as
hats, coats, boots and gloves, that are used in cleanroom facilities. All such
products are manufactured by others.
CD sells its products through catalogs and by a direct marketing force that
uses telephone sales as its primary tool. CD's typical customer is a facility
that requires a small quantity of each item ordered.
Laminaire has a site on the World Wide Web to communicate principally with
customers of CD and CM and provide a convenient means of describing its
products, communicate specifications and take orders from its approved
customers. This site will be folded into its new eSafety subsidiary during the
second quarter of 1999.
Electronic Manufacturing - EM specializes in small production runs of high end
critical components such as precision circuit boards, wire harnesses and control
panels. All products are assembled to customer-provided specifications.
EM sells through a limited direct sales effort, appearances at Job Shop
Technology Shows and word of mouth. Its customers tend to be military
contractors and high precision manufacturers.
Employees
At December 31, 1998, Laminaire had 38 employees, none of whom are
unionized or subject to a collective bargaining agreement.
6
<PAGE>
Laminaire owns a 47,000 square foot facility having office and
manufacturing space in Rahway, New Jersey.
Manufacturing and Backlog
Management believes that its sources of equipment, parts and supplies are
sufficient as all required parts and components are readily available and can be
acquired from alternative sources.
Laminaire generally does not commence assembling a system unless it has a
contract or a purchase order from the customer. Laminire has limited inventory.
At March 31, 1999, its backlog was approximately $856,388, a substantial portion
of which is expected to be completed during 1999, although delays outside of the
Company's control may push certain of the work covered by the purchase orders in
backlog into subsequent periods.
Item 3. LEGAL PROCEEDINGS
Laminaire is not a party to any litigation that, in its opinion, could have
a material adverse effect on it or its business. Laminaire is a defendant in
several cases involving collection of payables and employment matters.
In 1998, the Company terminated its former president for cause. He has
indicated that he may bring a cause of action against the Company as a result of
such termination, although no such action has been initiated to date. The
Company believes, based on its own investigation and discussion with counsel,
that any claims that the former president may bring are substantially without
merit.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Laminaire's Common Stock and Redeemable Warrants are quoted on the NASDAQ
Over-the-Counter ("OTC") Electronic Bulletin Board Market under the symbols
"THMZ" and "THMZW", respectively. The table below sets forth the high and low
sale prices for Laminaire's Common Stock after adjusting for a four for one
reverse stock split effected on June 29, 1998:
Quarter Ended Common Stock
High Low
March 31, 1997 $8.36 $2.75
June 30, 1997 5.00 1.75
September 30, 1997 5.76 2.38
December 31, 1997 4.12 1.75
March 31, 1998 1.63 .75
June 30, 1998 2.25 .50
September 30, 1998 .88 .27
December 31, 1998 .42 .09
7
<PAGE>
There are approximately 1,380 stockholders of record of the Company's Common
Stock.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995.
Information set forth herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy. No
assurance can be given that the future results covered by the forward-looking
statements will be achieved. Laminaire cautions readers that important factors
may affect their actual results and could cause such results to differ
materially from forward-looking statements made by or on behalf of Laminaire.
Such factors include, but are not limited to, changing market conditions, the
impact of competitive products, pricing, acceptance of the Combined Company's
products in development and other risks detailed herein and in other filings
that Laminaire makes or has made with the SEC.
General
Prior to the acquisition of Old Laminaire in October 1997, the Company's
operations consisted principally of systems contracts with customers in the
pharmaceutical and chiller control industries. Fluctuations in sales, revenues
and operating results occurred because of the timing of such contracts since
certain larger contracts required greater amounts of vendors' materials and use
of subcontractors than did other contracts. Generally, gross margins were lower
on those contracts which required the purchase of significant amounts of vendor
materials and services compared with contracts which were more engineering or
labor intensive. In addition, the Company's engineering staff was capable of
serving a significant volume of business. Thus, engineering costs did not
fluctuate at the same rate as revenues. This meant that if revenues increased,
gross profits increased at a faster rate than revenue. The reverse was true if
revenues were to decrease below the breakeven point.
The Company was unable to generate sufficient and timely contracts to
permit it to operate profitably and, accordingly, attempted to reduce business
volatility by becoming a product-oriented company serving various aspects of the
environmental controls industry. However, its efforts, which were limited
available resources, failed to make a meaningful penetration in the selected
market niches. It then decided that the best way to implement its strategy was
to acquire a product-based company. Old Laminaire was acquired as the first
major step of this new strategy.
Following the acquisition of Old Laminaire, the Company took various steps
to improve the operating results of its traditional core business that became
known as the Controls System Division ("TCS"), including:
o Combining all operations into a single facility in Rahway, New Jersey.
o Trying to identify and correct defects in newly-introduced products.
o Limiting bidding activities for TCS contracts to potential contracts
in which TCS anticipated having a commercial advantage over its
competition and which did not include products experiencing
significant technical problems.
8
<PAGE>
o Investigating whether there was a cost effective way to incorporate
TCS technology into Old Laminaire products to give such products a
competitive advantage.
Despite the foregoing efforts, TCS continued to impact cash flow negatively
and incur operating losses. The Company determined that the costs necessary to
improve TCS' operating results, including ongoing development and support costs,
were and would continue to be material in relation to the Company's resources
and the ultimate benefit to be derived therefrom remained highly uncertain.
Furthermore, there was no certainty that profitability could be achieved in the
foreseeable future. The Company, therefore, concluded that it was in its best
interests to focus all of its efforts and resources in the clean room industry.
During the quarter ended June 30, 1998, the Company replaced its President
with a former senior executive from Old Laminaire. At the same time, the Finance
Committee of the Board of Directors assumed a more active strategic and
oversight role in the Company. Management then subcontracted out as much of the
TCS open commitments as possible and eliminated its staff by September 30, 1998.
Old Laminaire had operated profitably prior to its acquisition by the
Company. However, subsequent to such acquisition its reported operating results
are and will continue to be burdened by (i) the amortization of goodwill and
other purchase adjustments required by generally accepted accounting principles;
(ii) the costs associated with being a public company; and (iii) interest and
debt service costs. Accordingly, the Company believes that it needs a greater
volume of revenue over which to spread these and other fixed costs or a plan to
reduce the interest and fixed facilities' costs. Management is considering the
sale or refinancing of the Company's building in Rahway, NJ as a means of
accomplishing certain of these objectives. No assurances can be given that The
Company will be successful in this undertaking.
In general, the Company believes that it is now positioned to compete in
niche markets on the basis of service and a willingness to customize. As a rule,
it is not competing based on technology. Management believes that controls are
in place to minimize the risk of incurring significant losses on individual
contracts or projects, although no assurances can be given that no such losses
will occur. The Company believes that operating losses are likely to continue
throughout the first half of 1999, although the cash impact of such operating
losses is likely to be less than those incurred over the immediately prior
quarters.
Results of Operations
Prior to the acquisition of Old Laminaire, all of the Company's revenues
and operations related to TCS. Therefore, the acquisition of Old Laminaire (in a
transaction accounted for as a purchase in conformity with the provisions of
Opinion No 16 of the Accounting Principles Board) and the discontinuance of TCS
means that the periods discussed below for the Company are not comparable in
most respects.
Readers should be aware that results reported for interim periods are not
necessarily indicative of results to be reported for a full year. Furtermore,
the Company changed its fiscal year from a year ending on June 30 to a calendar
year ending on December 31.
9
<PAGE>
Comparison of Fiscal Periods Ended December 31, 1998 and 1997
Prior to the acquisition of Old Laminaire, the Company had one business,
the controls system business. Immediataely following the acquisition of Old
Laminaire, the Company operated with four divisions - Cleanroom Manufacturing
("CM"), Cleanroom Distribution ("CD"), and Electronic Manufacturing ("EM") (all
of which were acquired from Old Laminaire), and TCS . In June 1998, the Company
discontinued TCS because of ongoing operating losses and Management's decision
that the risk associated with TCS' research and development and other
requirements did not constitute an effective use of the Company's limited
resources. Prior to the acquisition of Old Laminaire, TCS made up all of the
Company's operations.
The table below sets forth the sales and operating profits contributed to
continuing operations by each division for the year ended December 31, 1998.
Each of these operating divisions share the same facility and use a common
administrative pool. These joint costs have been allocated using various
formulas developed by the former management of Laminaire. The Company is
currently reviewing the allocation bases being used and may revise or modify
such bases.
CM CD EM Total
Revenues $ 2,264,772 $ 2,360,329 $ 1,403,892 $ 6,028,993
Cost of revenues 2,081,280 1,762,551 1,011,123 4,854,954
Gross profit 183,492 597,778 350,029 1,174,039
Direct selling 100,104 173,825 42,740 316,669
Contribution 83,388 423,953 350,029 857370
Joint overhead costs 884,923
Operating loss $ (27,553)
General and administrative expenses for the year ended December 31, 1998
include $79,711 relating to the amortization of goodwill and purchase
adjustments. Such expenses also include expenses of approximately $177,000
associated with the Company being a public entity. A significant portion of
those costs is noncash in nature.
The Company also incurred interest expense of approximately $316,000 in
1998, principally in connection with a loan due to Garay, LLC from whom Old
Laminaire was acquired. The Company is actively seeking ways to reduce these
debt service costs through the refinancing or sale of its building in Rahway, NJ
(see "Liquidity').
No net benefit was recognized for the benefit of Federal income tax loss
carryforwards because of the uncertainty of utilization of such carryforwards.
The rate of new orders received from customers slowed down during the last
quarter of 1998. EM and CM, in particular, experienced a sharp decrease in new
orders from their larger customers. The Company believes that this situation is
temporary, but no assurances can be given that the rate of new orders will
increase and equal or exceed the levels of prior periods. In part to address
this situation, the Company is undertaking a significant new initiative by
establishing a new subsidiary, eSafety, a business-to-business E-Commerce
solution for distributors and users of disposable safety equipment and
10
<PAGE>
garments for all applications. eSafety will seek to include products from a wide
array of manufacturers on its site and will incorporate state-of-the-art
technology and software. The target date to open the new site is the summer of
1999. The Company, which has engaged a leading developer of E-Commerce software
and marketing tools to assist it in this effort, intends to commit a significant
portion of its resources to the formation and development of eSafety.
Discontinued Operation
As previously indicated, the Company discontinued TCS in June 1998. A
summary of TCS' operations for the year ended December 31, 1998 and the 12
months ended December 31, 1997 follows:
1998 1997
---- ----
Revenues $ 1,476,833 $ 2,515,060
Cost of revenues 1,451,261 2,114,333
Gross profit 25,572 400,727
Operating expenses 804,888 2,650,696
Loss before taxes $ (779,316) $(2,273,67)
Operating expenses of TCS for the year ended December 31, 1998 exclude
corporate, facilities and similar type expenses that have been charged to
continuing operations.
The Loss on Disposal of the Discontinued Operations of $611,570 consists
principally of write-downs of inventories, receivables on certain long-term
contracts, other assets and fixed assets, as well as the costs to complete
contracts-in-progress. Many of the receivables written off related to retainages
on contracts in which customers experienced problems associated with the use of
new products. The Company minimized its close-down costs by outsourcing a
significant portion of the uncompleted work.
Comparison of the Six-Month Periods Ended December 31, 1997 and 1996
Substantially all of the operating results below relate to the Company's
operations prior to the acquisition of Old Laminaire. The business represented
by these operations was discontinued in June 1998.
<TABLE>
<CAPTION>
1997 % 1996 % Change
<S> <C> <C> <C> <C> <C>
Contract and other $ 2,887,447 100.0% $ 961,000 100.0% $ 1,926,447
revenues
Cost of revenues 2,414,766 83.6% 1,043,297 108.6% 1,371,469
Gross profit 472,681 16.4% -82,297 -8.6% 554,978
Expenses:
Personnel and related costs 473,320 16.4% 295,234 30.7% 178,086
Selling & Administration 712,968 24.7% 447,520 46.6% 265,448
expenses
Product development costs 121,578 4.2% 125,246 13.0% -3,668
Total Expenses 1,307,866 45.3% 868,000 90.3% 439,866
Operating income -835,185 -28.9% -950,297 -98.9% 115,112
Other-Net -878,718 -30.4% -407,534 -42.4% -471,184
Income before income taxes -1,713,903 -59.4% -1,357,831 -141.3% -356,072
Income Taxes-Net -4,499 -0.2% 0 0.0% -4,499
Net loss ($1,718,402) -59.5% ($1,357,831) -141.3% ($ 360,571)
</TABLE>
11
<PAGE>
The information presented is not comparable because the 1997 amounts
include the results of Old Laminaire's operations from the date of acquisition.
Old Laminaire, therefore, contributed sales of $1,762,578 and gross profits of
$405,569 to the consolidated results for this period. Substantially all of the
contribution towards corporate and joint overheads came from the Old Laminaire
operations. The Company's traditional systems business continued to be adversely
impacted by (i) the sales level being insufficient to cover all overheads and
(ii) loss contracts relating to the installation of newly-introduced products.
These loss contracts resulted in TCS realizing little or no gross margin for the
eighteen months ended December 31, 1997. At the same time, the Company did not
combine operations into a single facility until January 1998.
The results of operations for 1997 were also adversely affected by the
impact of (i) amortizing the debt discount associated with the favorable
conversion feature of the debt issued to finance the acquisition of Laminaire
and the accrual of the remaining lease liability associated with the Company's
rented facility in Ridgefield, New Jersey. These two matters resulted in noncash
charges of approximately $778,000. In addition, the Company incurred public
relations and other expenses of $239,580, which were also noncash in nature. The
results of operations in 1996 also reflect the impact of nonrecurring matters
which are described in Notes to the Consolidated Financial Statements included
elswhere herein.
Comparison of Fiscal 1997 to 1996
All of the operating results below relate to the Company's operations prior
to the acquisition of Old Laminaire. The business represented by these
operations was discontinued in June 1998.
<TABLE>
<CAPTION>
Caption 1997 % 1996 % Change %
<S> <C> <C> <C> <C> <C> <C>
Contract and other $2,351,191 $2,125,959 $225,232 10.6%
revenues
Cost of revenues 2,099,873 89.3% 1,437,682 67.6% 662,191 46.1%
Gross profit 251,318 10.7% 688,277 32.4% -436,959 -63.5%
Expenses:
Personnel and related costs 524,401 22.3% 246,489 11.6% 277,912 -63.5%
Selling and administrative 897,839 38.2% 417,686 19.6% 480,153 -63.5%
Product development costs 221,429 9.4% 169,667 8.0% 51,762 30.5%
Occupancy costs 32,955 1.4% 38,333 1.8% -5,378 -14.0%
Total 1,676,624 71.3% 872,175 41.0% 804,449 2.9%
Operating income -1,425,306 -60.6% -183,898 -8.7% -1,241,408
Nonoperating expenses - net -478,653 -20.4% 15,117 0.7% -493,770
Loss before income taxes -1,903,959 -81.0% -168,781 -7.9% -1,735,178
Income taxes - net -19,207 -0.8% -55,643 -2.6% -74,850
Net loss ($1,923,166) -81.8% ($113,138) -5.3% ($1,810,028)
</TABLE>
The Company completed an initial public offering of its common stock and
warrants in March 1996. Thereafter, it commenced implementing a strategy
designed to make it a product and service, rather than a systems-driven
business. Management believed that it would begin to realize the benefits of
these investments during fiscal 1997. However, this strategy was not successful
12
<PAGE>
because the product development costs were greater than anticipated, and the
Company did not achieve a sufficient level of market penetration to permit it to
operate profitably.
In January 1997, the Company made certain reductions in its workforce
designed to permit it to approach breakeven at lower levels of sales activity.
Nevertheless, the Company did not receive a sufficient quantity of new orders
and contracts to permit its traditional core business to operate at a profitable
level.
Operating expenses are not comparable between periods because fiscal 1997
includes the costs associated with the additional infrastructure put in place
following the initial public offering.
Product development costs increased because the Company hired four
engineers who devoted a significant portion of their time to introducing and
correcting the problems of new products.
In addition, operating results were significantly impacted by several
transactions which took place during the fiscal year ended June 30, 1997 and
related to the engagement of a public relations and acquisition consultant, the
issuance of nonqualified stock options and the cancellation of the Underwriting
Agreement with Nationwide Securities, Inc. Management believes that each of
these expenditures and transactions had the potential to contribute positively
to future shareholder value, although no assurance thereof can be given. There
were no similar investments or transactions during the fiscal year ended June
30, 1996. A detailed listing and description of these charges, which include
noncash items aggregating approximately $247,000, is set forth the Notes to
Consolidated Financial Statements included elsewhere herein. Management does not
anticipate incurring similar charges in the future
The Company established reserves for the entire benefit associated with the
unused income tax loss carryforwards because the Company must realize income in
the future to utilize such carryforwards.
Liquidity and Capital Resources
On October 16, 1997, the Company acquired all of the outstanding shares of
Common Stock of Old Laminaire from Garay LLC for a purchase price of $3,200,000,
subject to adjustment based on Old Laminaire's operating performance during the
period immediately prior to the acquisition. Garay LLC is an affiliate of
Charles Garay, who became a director of the Company following the acquisition of
Old Laminaire. The purchase price consisted of a cash payment of $1,000,000, a
convertible promissory note in the principal amount of $2,200,000 (the "First
Note") and a promissory note with a principal amount to be determined (the
"Second Note").
First, Second and Third Notes - The First Note bears interest at the rate of 10%
per annum and is payable in 60 equal monthly installments principal and interest
of $33,830 commencing November 16, 1997 with a final payment of principal of
$1,000,000 due on October 16, 2002. The First Note is convertible into shares of
Common Stock at a conversion price per share equal to $1. The First Note became
convertible for a period of two years commencing April 16, 1998 in amounts not
exceeding $500,000 for each four month period. The Second Note was in a
principal amount equal to the difference between (a) the Stockholders' Equity
(as defined) of Old Laminaire as of September 30, 1997 minus $200,000 minus (b)
the Stockholders' Equity of Old Laminaire as of September 30, 1996 or
approximately $28,000.
13
<PAGE>
In conjunction with the acquisition of Old Laminaire, the Company issued a
promissory note to Charles Garay in the principal amount of $90,479 (the "Third
Note") to replace an existing liability due to Mr. Garay by the acquired
company. The Third Note, and all accrued interest at the rate of 15% per annum.
The Second and Third Notes were paid in October 1998.
The Company's obligations under the First Note are secured by first
priority security interests in the real property and all tangible and intangible
personal property, including inventory and accounts receivable, of Old
Laminaire. The security agreement underlying the First Note also contains
various financial ratios.
In conjunction with the acquisition of all of the outstanding common stock
of Old Laminaire, the Company paid all of Old Laminaire's obligations, amounting
to approximately $1,100,000, to Corestates National Bank ("Corestates") under a
mortgage secured by Old Laminaire's interest in its real property and building
located in Rahway, New Jersey.
The Company's operations have been generating sufficient cash flow to
service the First Note, although no assurances can be given that this trend will
continue for the term of the First Note.
Other Financings - The funds in excess of those provided by the issuance of
the notes to Garay LLC utilized by the Company to purchase the common stock of
Old Laminaire and satisfy Old Laminaire's obligations to Corestates were
obtained from the issuance of (i) Common Stock of the Company for aggregate
consideration of $200,000 and (ii) convertible promissory notes and debentures
for $2,300,000.
Subsequent to June 30, 1997 but prior to the closing of the Laminaire
acquisition, the Company issued convertible debentures (the "First Debentures")
to ten investors, in the aggregate principal amount of $1,450,000 pursuant to
Regulation S under the Securities Act of 1933, as amended, (the "Securities
Act"). Concurrent with the closing of the acquisition of Laminaire on October
16, 1997, the Company also issued 96,630 shares of its Common Stock to a single
investor for aggregate consideration of $200,000 pursuant to Regulation S under
the Securities Act and issued convertible debentures (the "Debentures") to three
investors in the principal amount of $300,000 pursuant to Regulation S under the
Securities Act. The Company will pay interest to the holders of the Debenture at
the rate of 5% per annum. Interest on the Debentures is payable in cash or
Common Stock of the Company, at the Company's discretion. The Debentures, which
are unsecured, became convertible into shares of the Company's Common Stock
beginning 41 days after the date of issuance, at a price per share equal to the
lesser of 70% of the average closing bid price for the five trading days
preceding: (i) the date of conversion or (ii) the date of closing, October 16,
1997.
Concurrent with the closing of the acquisition of Laminaire, the Company
issued a convertible promissory note (the "Convertible Note") to Norwood Venture
Corp. in the principal amount of $500,000 pursuant to Regulation D under the
Securities Act. The Company is obligated pay interest to the holders of the
Convertible Note at the rate of 12% per annum. The Company's obligations under
the Convertible Note were secured by a first security interest in the TCS
accounts receivable and a lien that is second in priority to that of Garay LLC,
the seller of the common stock of Laminaire, with respect to the inventory and
equipment of the Company and the accounts receivable, inventory and equipment of
Laminaire. Laminaire also executed a guaranty in favor of Norwood with respect
to the Company's obligations under the Convertible Note. The Convertible Note is
14
<PAGE>
convertible into shares of the Company's Common Stock at any time at a price per
share equal to the lesser of 70% of the average closing bid price for the five
trading days preceding (i) the date of closing or conversion. In June 1998, the
Company discontinued the operations of TCS, thereby affecting Norwood's
collateral position. In November 1998, the Company agreed to substitute the
common stock of Old Laminaire and a second mortgage on the Rahway building for
the TCS receivables as collateral under the Norwood agreement. The Company has
the right to substitute accounts receivable in lieu of the common stock of Old
Laminaire if certain conditions are met. Furthermore, Norwood will relinquish
its second mortgage on the Rahway building if the Company refinances such
building and uses the proceeds therefrom to satisfy the First Note.
Through December 31, 1998, an aggregate of $1,410,000 of the principal
amount of the Debentures has been converted into Common Stock.
The Company also borrowed $200,000 from an individual investor. The terms
and conditions of such borrowing have not yet been finalized and, accordingly,
such note is classified as a current liability in the accompanying Consolidated
Balance Sheet at December 31, 1998.
To the extent that a portion of principal of the Convertible Note and
Debentures is not converted, the Company will seek a funding source to refinance
such indebtedness. No assurance can be given that the Company will be successful
in such efforts.
Lack of Credit Facilities - Laminaire does not have any working capital or other
credit facilities. Laminaire is dependent on revenue from operations and, to
date, has satisfied its obligations when due. However, it may require credit
facilities or other source of liquidity to meet the needs of its business. No
assurance can be given that it will obtain such financing or, if available, on
terms acceptable to Laminaire.
Laminaire is exploring options to reduce its debt service obligations.
These options include, but are not limited to, a possible refinancing or sale of
its building in Rahway, NJ with the proceeds used to repay outstanding
indebtedness. No assurances can be given that any option being considered will
be successfully completed.
Securities Listing - The National Association of Securities Dealers, Inc.
advised Laminaire that it was not in compliance with the maintenance
requirements for continued listing and, accordingly, delisted Laminaire's
securities from the NASDAQ SmallCap Market in July 1998. Trading in Laminaire's
securities now takes place in the over-the-counter market in what are commonly
referred to as the "Electronic Bulletin Board" or the "OTC." As a result, an
investor may find it more difficult to dispose of or obtain accurate quotations
as to the market value of the securities. Furthermore, Laminaire may experience
greater difficulty in obtaining financing if and when needed.
Seasonality
The demand for Laminaire's products is not seasonal.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards Board,
15
<PAGE>
the American Institute of Certified Public Accountants or the Securities and
Exchange Commission is expected to have a material impact on Laminaire's
financial position or reported results of operations.
Year 2000 Issues
Management has initiated a company-wide program and has developed a formal
plan of implementation to prepare the Company for the Year 2000. This includes
taking actions designed to ensure that the Company's information technology
("IT") systems, products and infrastructure are Year 2000 compliant and that its
customers, suppliers and service providers have taken similar action. The
Company is in the process of evaluating its internal issues - all of its IT
systems, products, equipment and other facilities systems. At this time,
Management believes that the Company does not have any internal problem other
than to upgrade some of its software to available new releases that are Year
2000 compliant. With respect to its external issues - customers, suppliers and
service providers, the Company is surveying them primarily through written
correspondence. Despite the efforts to survey customers, suppliers and service
providers, Management cannot be certain as to the actual Year 2000 readiness of
these third parties. To the extent any of its suppliers or service providers are
not Year 2000 ready, the Company believes that it will be able to obtain other
suppliers or service providers without a significant interruption to its
business. To date, the Company has not formulated a Year 2000 contingency plan.
Based upon responses to its inquiries, the Company will determine the need for a
contingency plan by the end of the second quarter of 1999. The Company
anticipates completing its Year 2000 project in mid 1999
Management currently believes that the costs related to the Company's
compliance with the Year 2000 issue should not have a material adverse effect on
its consolidated financial position, results of operations or cash flows.
Item 7. FINANCIAL STATEMENTS
The financial statements are filed as part of this Annual Report on Form
10-KSB.
Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None. The Company has not had any disagreements with its independent
auditors regarding the presentation of its financial statements or the
application of any Generally Accepted Accounting Principles.
PART III.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The executive officers and directors of Laminaire are as follows:
Name Age Position with Company
Stephen B. Schneer 69 Chairman of the Board
Antonio Garay 50 President
Gerard M. Gallagher 62 Chief Financial Officer
Edward A. Heil 47 Director
16
<PAGE>
K. Ivan F. Gothner 40 Director
Asim S. Kohli 32 Director
Charles J. Garay 58 Director
Steven W. Schuster 44 Secretary
Jon J. Darcy (1) 51 Director
(1) The Board of Directors has voted to recommend to the shareholders that
Mr. Darcy be removed from the Board. Such removal will be subject to the
affirmative vote of a majority of the shareholders.
All Directors hold office until the completion of their term of office,
which is not longer than three years, or until their successors have been
elected. The Company has a staggered Board of Directors. The terms of Messrs.
Heil and Gothner expire in 1999. The term of Mr. Darcy expires in 2000. Mr.
Garay's term expires in 2001. All officers are appointed annually by the Board
of Directors and, subject to existing employment agreements, serve at the
discretion of the Board.
The Board of Directors has an Audit Committee, Finance, Operating and
Compensation Committee. The Audit Committee reviews the results and scope of the
audit and other services provided by the Company's independent auditors, reviews
and evaluates the Company's internal audit and control. The Finance Committee,
established in February 1998, oversees the Company's treasury function. The
Operating Committee reviews and establishes Laminaire's strategies, goals and
direction.
Background of Executive Officers and Directors
Stephen B. Schneer, who was elected to the Board of Directors in April
1999, has been in the private practice of securities and general business law
for more than 30 years. He is a graduate of Washington and Jefferson University
and holds a Juris Doctorate from Columbia University.
Edward A. Heil is a certified public accountant and a managing director,
since January 1992, in Independent Network Group, Inc., a financial consulting
firm. From 1984 through December 1991 he was a partner in the accounting firm,
Deloitte & Touche, LLP. From 1973 to 1984 he was employed in various
professional capacities by Deloitte & Touche, LLP. Mr. Heil holds Bachelor of
Arts and Master of Business Administration degrees from New York University.
K. Ivan F. Gothner is a Managing Director and a founder of Adirondack
Capital, LLC, a private merchant banking firm that focuses on serving small and
midsize growth companies. Mr. Gothner was associated with Kleinwort Benson
Limited in 1986 and, from 1987 through 1990, Mr. Gothner acted as the General
Manager of the KB Mezzanine Fund, LP., a specialized smallcap fund. In 1990, Mr.
Gothner joined Barclays Bank as a Senior Vice President responsible for
establishing an investment banking unit to serve small and mid sized companies.
Upon the sale of Barclays' "middle market" business at the end of 1992, Mr.
Gothner began to work independently in this area. In addition to financial
advisory assignments, Mr. Gothner's work had included an assignment where he
acted as a "start up" Managing Director of First United Equities Corporation
from 1995 to 1997. Mr. Gothner holds BA and MA degrees from Columbia University
and also serves as a director of the Ashton Technology Group, a public company
based in Philadelphia and Gomez Advisors, Inc., an internet consulting and
research company based in Boston.
Asim S. Kohli, who was elected to the Board of Directors in April 1999, is
an investment banker. He was engaged in executive capacities involving corporate
finance at United States Financial Group, Incorporated until February
17
<PAGE>
1999 at which time he established EJ Associates, LLC, a private consulting and
merchant banking firm. Mr. Kohli is a graduate of the University of Northern
Illinois.
Charles J. Garay, the founder of Laminaire became a member of the Board of
Directors in October 1997 upon the completion of the Laminaire acquisition. From
1968 to October 1997 he was President and Chief Executive Officer of Old
Laminaire. Mr. Garay attended Rutgers University.
Antonio Garay became President of the Company in April 1998. Prior thereto,
he held various executive positions with Old Laminaire since 1981. Mr. Garay
holds a Bachelor of Business Administration degree from Hofstra University and a
Master of Business Administration degree from Bernard Baruch College.
Gerard M. Gallagher became Chief Financial Officer of the Company in
February 1998. For the preceding five years, he served as an independent
consultant to a variety of businesses. He is a graduate of Iona College.
Steven W. Schuster has been secretary of the Company since July 1996. He is
a member of McLaughlin & Stern, LLP, counsel to the Company, since 1995. Mr.
Schuster has practiced corporate and securities law for the past 18 years. He
received a Bachelor of Arts degree from Harvard University and a Juris Doctorate
from New York University. Mr. Schuster is a director of ACTV, Inc., an
interactive television company.
Jon J. Darcy co-founded the Company in 1978 and has been an executive with
it since inception and President from 1987 until April 1998. His employment
contract was terminated August 1998. He holds a Bachelor of Science degree from
the State University of New York Maritime College.
Outside directors receive $4,000 per year plus $350 per meeting as
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for expenses incurred in attending Directors' meetings. Firms
associated with outside directors received an aggregate of $250,143 (exclusive
of expenses), principally for professional fees associated with the acquisition
program negotiation of the financing therefor, and in the case of Mr. Schuster,
legal services. During the year ended December 31, 1998. A firm associated with
Edward A. Sundberg received $22,500; a firm associated with Edward A. Heil
received $120,000; a firm associated with Steven W. Schuster received $30,143,
and a firm associated with K. Ivan F. Gothner received $50,000. Mr. Schuster
also received 100,000 shares of common stock, and Mr. Schuster's firm is due
approximately $101,000 in unpaid legal fees at December 31, 1998. Fees paid to
directors or firms associated with directors relate to work that would generally
be done by other consultants or additional employees.
Messrs. Kohli and Heil, with assistance from Mr. Gothner, are overseeing
the Company's plans for and activities relating to the establishment of eSafety.
Item 10. EXECUTIVE COMPENSATION
Antonio Garay was appointed President in April 1998 and has a contract
calling for an annual salary of $120,000 as well as a car allowance and
reimbursement of expenses. The contract expires in October 2000.
18
<PAGE>
Jon J. Darcy, former President and Chief Executive Officer, received
compensation of approximately $131,000 in each of fiscal 1996 and 1995
(consisting of salary of $123,000 and benefits having an estimated value of
$8,000). Mr. Darcy received options to purchase 95,000 shares at an exercise
price of $.83 per share, the market price of the shares on the date of issuance.
The Board of Directors has established a compensation committee comprised
of outside directors to review compensation matters as well as any new
employment contracts. The Company has a health and disability plan and a 401(k)
plan for its employees. In September 1998, the Company terminated its employment
agreement with Mr. Darcy for cause.
Stock Option Plans
The Company has two stock option plans which expire ten years from the date
adopted and enable the Company to grant incentive stock options, nonqualified
options and stock appreciation rights ("SARs") for up to an aggregate of
1,000,000 shares of the Company's Common Stock. Incentive stock options granted
under the Plan must conform to applicable Federal income tax regulations and
have an exercise price not less than the fair market value of shares at the date
of grant (110% of fair market value for ten percent or more stockholders). Other
options and SARs may be granted on terms determined by a committee of the Board
of Directors. As of December 31, 1998, there were 114,000 options outstanding
under the Plans, all of which are exercisable at prices ranging from $.20 to
$.57.
The information required by this Item 10 is incorporated by reference to
the information captioned "Remuneration and Other Transactions with Management"
included in the Company's definitive proxy statement in connection with the
meeting of shareholders to be held on a date to be determined.
Item 11. SECURITY OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at December 31,
1998 by (i) each person known by the Company to own, directly or beneficially,
more than 5% of the Company's Common Stock at such date, (ii) each of the
Company's directors, and (iii) all officers and directors of the Company as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws, where applicable.
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER(6) SHARES OWNED(5) SHARES OWNED(4)
Jon J. Darcy(1) 134,938 3.5
Stephen B. Schneer
Edward A. Heil(2) -- --
K. Ivan F. Gothner -- --
Asim S. Kohli
Charles J. Garay -- --
19
<PAGE>
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER(6) SHARES OWNED(5) SHARES OWNED(4)
Steven W. Schuster(3) 90,000 2.5
David Morgenstern 152,372 3.9
Norwood Venture Group(4) 5,000,000 56.46
Austost Anstalt Schaan(4) 378,080 14.9
UFH Endowment(4) 749,281 17.7
Arcadia Mutual Fund Co., Inc(4) 1,719,566 43.2
Directors and Officers As a Group 224,938 6.0
(1) Excludes 110,385 shares held in trust for Mr. Darcy's children over
which Mr. Darcy disclaims beneficial ownership.
(2) Excludes 20,000 shares owned by a company in which Mr. Heil is
managing director. Mr. Heil disclaims beneficial ownership thereof.
(3) Excludes 10,250 shares held by the law firm in which Mr. Schuster is a
partner.
(4) Excludes the assumed conversion of warrants and options.
(5) Includes all options held by the respective individuals.
(6) The address for each officer or director listed above is 960 East
Hazelwood Avenue, Rahway, New Jersey 07065.
(7) Represents shares of common stock issued upon conversion of a
Convertible Note.
(8) Issuable upon conversion of Convertible Debentures at a conversion
price equal to 70% of the lesser of the average closing bid price per
share of the Common Stock for the five trading days prior to the (i)
closing date of the Convertible Debentures or (ii) conversion date of
such Debentures. For the purpose of this calculation, the bid price
was assumed to be $.10.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 16, 1997, the Company acquired all of the outstanding shares of
Common Stock of Old Laminaire from Garay LLC for a purchase price of $3,200,000,
subject to adjustment based on Old Laminaire's operating performance during the
period immediately prior to the acquisition. Garay LLC is an affiliate of
Charles Garay, who became a director of the Company following the acquisition of
Old Laminaire. The purchase price consisted of a cash payment of $1,000,000, a
convertible promissory note in the principal amount of $2,200,000 (the "First
Note") and a promissory note with a principal amount to be determined (the
"Second Note").
First, Second and Third Notes - The First Note bears interest at the rate of 10%
per annum and is payable in 60 equal monthly installments principal and interest
of $33,830 commencing November 16, 1997 with a final payment of principal of
$1,000,000 due on October 16, 2002. The First Note is convertible into shares of
Common Stock at a conversion price per share equal to $1. The First Note became
convertible for a period of two years commencing April 16, 1998 in amounts not
exceeding $500,000 for each four month period. The Second Note was in a
principal amount equal to the difference between (a) the Stockholders' Equity
(as defined) of Old Laminaire as of September 30, 1997 minus $200,000 minus (b)
the Stockholders' Equity of Old Laminaire as of September 30, 1996 or
approximately $28,000.
20
<PAGE>
In conjunction with the acquisition of Old Laminaire, the Company issued a
promissory note to Charles Garay in the principal amount of $90,479 (the "Third
Note") to replace an existing liability due to Mr. Garay by the acquired
company. The Third Note, and all accrued interest at the rate of 15% per annum.
The Second and Third Notes were paid in October 1998.
The Company's obligations under the First Note are secured by first
priority security interests in the real property and all tangible and intangible
personal property, including inventory and accounts receivable, of Old
Laminaire. The security agreement underlying the First Note also contains
various financial ratios.
In conjunction with the acquisition of all of the outstanding common stock
of Old Laminaire, the Company paid all of Old Laminaire's obligations, amounting
to approximately $1,100,000, to Corestates National Bank ("Corestates") under a
mortgage secured by Old Laminaire's interest in its real property and building
located in Rahway, New Jersey.
The Company's operations have been generating sufficient cash flow to
service the First Note, although no assurances can be given that this trend will
continue for the term of the First Note.
Other Financings - The funds in excess of those provided by the issuance of
the notes to Garay LLC utilized by the Company to purchase the common stock of
Old Laminaire and satisfy Old Laminaire's obligations to Corestates were
obtained from the issuance of (i) Common Stock of the Company for aggregate
consideration of $200,000 and (ii) convertible promissory notes and debentures
for $2,300,000.
Subsequent to June 30, 1997 but prior to the closing of the Laminaire
acquisition, the Company issued convertible debentures (the "First Debentures")
to ten investors, in the aggregate principal amount of $1,450,000 pursuant to
Regulation S under the Securities Act of 1933, as amended, (the "Securities
Act"). Concurrent with the closing of the acquisition of Laminaire on October
16, 1997, the Company also issued 96,630 shares of its Common Stock to a single
investor for aggregate consideration of $200,000 pursuant to Regulation S under
the Securities Act and issued convertible debentures (the "Debentures") to three
investors in the principal amount of $300,000 pursuant to Regulation S under the
Securities Act. The Company will pay interest to the holders of the Debenture at
the rate of 5% per annum. Interest on the Debentures is payable in cash or
Common Stock of the Company, at the Company's discretion. The Debentures, which
are unsecured, became convertible into shares of the Company's Common Stock
beginning 41 days after the date of issuance, at a price per share equal to the
lesser of 70% of the average closing bid price for the five trading days
preceding: (i) the date of conversion or (ii) the date of closing, October 16,
1997.
Concurrent with the closing of the acquisition of Laminaire, the Company
issued a convertible promissory note (the "Convertible Note") to Norwood Venture
Corp. in the principal amount of $500,000 pursuant to Regulation D under the
Securities Act. The Company is obligated pay interest to the holders of the
Convertible Note at the rate of 10% per annum. The Company's obligations under
the Convertible Note were secured by a first security interest in the TCS
accounts receivable and a lien that is second in priority to that of Garay LLC,
the seller of the common stock of Laminaire, with respect to the inventory and
21
<PAGE>
equipment of the Company and the accounts receivable, inventory and equipment of
Laminaire. Laminaire also executed a guaranty in favor of Norwood with respect
to the Company's obligations under the Convertible Note. The Convertible Note is
convertible into shares of the Company's Common Stock at any time at a price per
share equal to the lesser of 70% of the average closing bid price for the five
trading days preceding (i) the date of closing or conversion. In June 1998, the
Company discontinued the operations of TCS, thereby affecting Norwood's
collateral position. In November 1998, the Company agreed to substitute the
common stock of Old Laminaire and a second mortgage on the Rahway building for
the TCS receivables as collateral under the Norwood agreement. The Company has
the right to substitute accounts receivable in lieu of the common stock of Old
Laminaire if certain conditions are met. Furthermore, Norwood will relinquish
its second mortgage on the Rahway building if the Company refinances such
building and uses the proceeds therefrom to satisfy the First Note.
The Company also borrowed $200,000 from an individual investor. The terms
and conditions of such borrowing have not yet been finalized and, accordingly,
such note is classified as a current liability in the accompanying Consolidated
Balance Sheet at December 31, 1998.
Outside directors receive $4,000 per year plus $350 per meeting as
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for expenses incurred in attending Directors' meetings. Firms
associated with outside directors received an aggregate of $250,143 (exclusive
of expenses), principally for professional fees associated with the acquisition
program negotiation of the financing therefor, and in the case of Mr. Schuster,
legal services. During the year ended December 31, 1998. A firm associated with
Edward A. Sundberg received $22,500; a firm associated with Edward A. Heil
received $120,000; a firm associated with Steven W. Schuster received $30,143,
and a firm associated with K. Ivan F. Gothner received $50,000. Mr. Schuster
also received 100,000 shares of common stock, and Mr. Schuster's firm is due
approximately $101,000 in unpaid legal fees at December 31, 1998. Fees paid to
directors or firms associated with directors relate to work that would generally
be done by other consultants or additional employees.
PART IV Exhibits and Reports on Form 8-K
a. Exhibits
INDEX TO EXHIBITS
1.1 Release Agreement among Nationwide Securities, Inc. (and its
affiliates) and Thermo-Mizer Environmental Corp.(1)
2. Plan of Merger for Thermo Engineering, Certificate of Ownership and
Merger, Certificate of Merger.(1)
3.1 Certificates of Incorporation.(1)
3.2 By-Laws.(1)
4.1 Specimen Certificate of Common Stock.(1)
4.2 Form of Underwriter's Warrant Purchase Option.(1)
4.3 Form of Option issued to Solay, Inc. and Crystal Line, Inc.(2)
22
<PAGE>
4.4 Form of Options issued to Officers, Directors, Consultants and
Employees.(3)
4.5 Form of Class B Warrant.(3)
10.2 Agreement with D.R. Maruster & Co. dated December 10, 1996.(4)
10.2 Premium Reduction Option Cafeteria Plan.(1)
10.3 Lease Agreement.(1)
10.4 401(k) Retirement Plan and Profit Sharing Plan.(1)
10.5 Thermo-Mizer Environmental Corp. 1996 Stock Incentive Plan.(2)
10.6 Employment Agreement - Thomas B. Lewis(1)
10.7 Employment Agreement - Jeffrey A. Buser(1)
10.8 Employment Agreement - Eric W. Stark(1)
10.9 Agreement between the Registrant and Enersave, Inc. dated July 1996(3)
10.10 Agreement between the Registrant and American Process Controls,
Inc.(3)
10.11 Consulting Agreement with Solay, Inc.(2)
10.12 Amendment to Consulting Agreement between Registrant and Solay, Inc.
dated as of February 21, 1997.(5)
10.13 Agreement with Continental Capital & Equity Corporation dated April
29, 1997.(6)
10.14 Form of Convertible Debenture regarding July 7, 1997 issuance.(7)
10.15 Form of Regulation S Securities Subscription Agreement.(7)
10.16 Form of Escrow Agreement.(7)
10.17 Form of Registration Rights Agreement.(7)
10.18 Form of Employment Agreement between the Registrant and Jon J. Darcy
dated July 1, 1997.(7)
10.19 Purchase Agreement between the Company and Laminaire Corporation dated
October 13, 1997.(9)
10.20 Promissory Note in Principal Amount of $2,200,000 dated October 16,
1997 executed by the Company in favor of Garay LLC.(10)
10.21 Promissory Note dated October 16, 1997 executed by the Company in
favor of Garay LLC.(10)
10.22 Promissory Note in Principal Amount of $90,479 dated October 16, 1997
executed by Company in favor of Charles Garay.(10)
23
<PAGE>
10.23 Guaranty executed by Laminaire Corporation on October 16, 1997.(10)
10.24 Mortgage and Security Agreement executed by Laminaire Corporation.(10)
10.25 Employment Agreement of Charles J. Garay dated October 16, 1997.(10)
10.26 Employment Agreement of Antonio Garay dated October 16, 1997.(10)
10.27 Employment Agreement of Gerald E. Reilly dated October 16, 1997.(10)
10.28 Employment Agreement of Etta Monteleone dated October 16, 1997.(10)
10.29 Form of 5% Convertible Debenture issued by the Company pursuant to
Regulation S.(10)
10.30 Convertible Note Purchase Agreement between the Company and Norwood
Venture Corp. dated October 16, 1997, with form of Convertible
Promissory Note executed by the Company in favor of Norwood Venture
Corp. dated October 16, 1997.(10)
10.31 Security Agreement executed by the Company in favor of Norwood Venture
Corp. dated October 16, 1997.(10)
10.32 Security Agreement executed by Laminaire Corporation in favor of
Norwood Venture Corp. dated October 16, 1997.(10)
10.33 Guaranty executed by Laminaire Corporation in favor of Norwood Venture
Corp. dated October 16, 1997.(10)
10.34 Consulting Agreement with Continental Capital & Equity Corp. dated
July 12, 1997.(7)
10.35 Consulting Agreement with Roy Meadows dated March 29, 1998.(11)
10.36 Memorandum of Understanding with Adirondack Capital, LLC dated October
28, 1997. (12)
10.37 Memorandum of Understanding with Consult America Inc. dated October
28, 1997. (12)
10.38 Memorandum of Understanding with The Ridge Group dated October 28,
1997. (12)
10.39 Non-Qualified Options. (8)
14. Assignment of Patent.(1)
27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
(1)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form SB-2.
(2)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on September 26, 1996.
(3)Included in, and incorporated by reference to, the Registrant's Registration
24
<PAGE>
Statement on Form S-8, filed on June 30, 1996.
(4)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on January 21, 1997.
(5)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on March 11, 1997.
(6)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on May 13, 1997.
(7)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form 8-K, filed on July 22, 1997.
(8)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8 filed on April 14, 1997.
(9)Included in, and incorporated by reference to, the Annual Report on Form
10-KSB filed on October 13, 1997.
(10)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form 8-K filed on October 27, 1997.
(11)Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8 filed on March 31, 1998.
(12) Included in, and incorporated by reference to, the Registrant's
Registration Statement on Form S-8 filed on April 15, 1998.
b. Report on Form 8-K
25
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
/s/ Antonio Garay
---------------------------------------
ANTONIO GARAY
Title: President
Date: 4/15/99
/s/ Gerard M. Gallagher
---------------------------------------
GERARD M. GALLAGHER
Title: Chief Financial Officer
Date: 4/15/99
Directors
/s/ Stephen B. Schneer
---------------------------------------
Stephen B. Schneer
Title: Director and Chairman
Date: 4/15/99
/s/ Edward A. Heil
---------------------------------------
EDWARD A. HEIL
Title: Director
Date: 4/15/99
/S/ K. Ivan F. Gothner
---------------------------------------
K. IVAN F. GOTHNER
Title: Director
Date: 4/15/99
/S/ Asim S. Kohli
---------------------------------------
Asim S. Kohli
Title: Director
Date: 4/15/99
---------------------------------------
CHARLES J. GARAY
Title: Director
Date: __________
----------------------------------------
JON J. DARCY
Title: Director
Date: __________
26
<PAGE>
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet at December 31, 1998
Consolidated Statements of Operations for the Year Ended
December 31, 1998, the Six Months Ended December 31, 1997
and the Fiscal Year Ended June 30, 1997
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1998, the Six Months Ended December 31, 1997
and the Fiscal Year Ended June 30, 1997
Consolidated Statements of Stockholders' Equity for the Year
Ended December 31, 1998, the Six Months Ended December 31,
1997 and the Fiscal Year Ended June 30, 1997
Notes to Consolidated Financial Statements
27
<PAGE>
To the Board of Directors
Laminaire Corporation
Rahway, New Jersey
We have audited the accompanying consolidated balance sheet of Laminaire
Corporation (formerly Thermo-Mizer Environmental Corp.) and subsidiary as of
December 31, 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three fiscal periods in the
period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
represent fairly, in all material respects, the financial position of Laminaire
Corporation (formerly Thermo-Mizer Environmental Corp.) and subsidiary as of
December 31, 1998 and the results of their operations and their cash flows for
each of the three fiscal periods in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Eichler Bergsman & Co., LLP
New York, NY
April 15, 1999
28
<PAGE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
LAMINAIRE CORPORATION
(Formerly THERMO-MIZER ENVIRONMENTAL CORP.) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Current Assets:
Cash $ 79,785
Accounts receivable-net of allowance of $68,039 656,886
Inventories 534,982
Prepaid expenses and other 125,052
----------
Total Current Assets 1,396,705
----------
Property, Plant and Equipment - net 2,190,898
Other Assets - principally goodwill 1,930,092
----------
Total Assets $5,517,695
==========
See Notes to Consolidated Financial Statements.
<PAGE>
LAMINAIRE CORPORATION
(Formerly THERMO-MIZER ENVIRONMENTAL CORP.) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt $ 460,373
Accounts payable 796,292
Accrued expenses and other 336,118
Net liabilities of discontinued operation 303,347
----------
Total Current Liabilities 1,896,135
----------
Long-term Debt 2,250,519
----------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.001 par value; 25,000,000 shares
Authorized; 3,855,267 shares issued and outstanding) 3,855
Additional paid-in capital 6,681,117
Deficit (5,153,931)
----------
Total 1,531,041
Less - Note receivable (160,000)
----------
Stockholders' Equity - net 1,371,041
----------
Total Liabilities and Stockholders' Equity 5,517,695
==========
See Notes to Consolidated Financial Statements.
30
<PAGE>
LAMINAIRE CORPORATION
(Formerly THERMO-MIZER ENVIRONMENTAL CORP.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998,
THE SIX MONTHS ENDED DECEMBER 31, 1997,
AND THE FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Year Ended Six Months Year ended
12/31/98 Ended 12/31/97 6/30/97
<S> <C> <C> <C>
CONTINUING OPERATIONS:
Sales $ 6,028,993 $ 1,762,578
Cost of sales 4,854,954 1,357,009
----------- -----------
Gross profit 1,174,039 405,569
Selling and administrative expenses 1,201,592 383,933
----------- -----------
Operating loss (27,553) 21,636
Other - net (principally interest and, in 1997,
charges of $750,000 relating to the issuance of
convertible debentures) 397,415 (850,699)
----------- -----------
Loss from continuing operations (424,968) (829,063)
----------- -----------
DISCONTINUED OPERATIONS:
Loss from operations (779,316) (889,339) $(1,923,166)
Loss from disposal and closedown (611,570)
-----------
Loss from discontinued operation (1,390,886) (889,339) (1,923,166)
----------- ----------- -----------
NET LOSS $(1,815,854) $(1,718,402) $(1,923,166)
=========== =========== ===========
BASIC LOSS PER SHARE:
Continuing Operations $ (.14) $ (1.00)
Discontinued Operations (.47) (1.07) $ (3.44)
----------- ----------- -----------
Net Loss $ (.61) $ (2.07) $ (3.44)
=========== =========== ===========
Weighted average number of common
Shares outstanding 2,983,253 827,510 557,843
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
Laminaire Corporation
(Formerly Thermo-Mizer Environmental Corp.) and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998,
SIX MONTHS ENDED DECEMBER 31, 1997
AND THE FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Year Ended Six Months Ended Year Ended
---------- ---------------- ----------
December 31, 1998 December 31, 1997 June 30,1997
----------------- ----------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss $(1,815,854) $(1,718,402) $(1,923,166)
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations 1,390,886 889,339 1,923,166
Depreciation and amortization 304,431 12,007
Loss on disposal of assets
Provision for doubtful accounts 45,449
Nonoperating writeoffs and charges 750,000
(Increase) decrease in assets:
Accounts receivable 526,794 (289,084)
Inventories 255,198 (411,896)
Prepaid expenses and other 134,848 61,711
Increase (decrease) in liabilities:
Accounts payable 32,641 381,663
Accrued expenses and other 95,765 (314,248)
----------- -----------
Net cash used in continuing operating activities 970,158 (638,910)
Net cash used by discontinued operations (880,252) (284,373) (1,756,767)
----------- ----------- -----------
Net cash used by all operating activities 89,906 (923,283) (1,756,767)
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (38,000) (2,285,462) (104,112)
----------- ----------- -----------
FINANCING ACTIVITIES:
Issuance of commons stock and warrants 103,161 1,388,706 428,764
Payments on debt (337,461) (1,510,995)
Proceeds from debt 4,479,357
Acquisition and financing costs (37,000) (1,420,525) (282,272)
Investment in other time deposit 375,000
Other investments (198,619)
Purchase of treasury stock (37,625) (34,080)
----------- -----------
Net cash provided by (used in) financing activities (271,300) 3,273,918 (86,207)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents
(219,394) 65,173 (1,947,086)
Cash-beginning 299,179 234,006 2,181,779
----------- ----------- -----------
Cash-ending $ 79,785 $ 299,179 $ 234,092
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE>
Laminaire Corporation
(Formerly Thermo-Mizer Environmental Corp.) and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998,
THE SIX MONTHS ENDED DECEMBER 31, 1997,
AND THE FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained
Paid-In Earnings
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996 474,125 $ 474 $ 3,244,573 $ 303,491 $ 3,548,538
Sale of Common Stock 205,250 205 588,559 588,764
Net loss -- -- (1,923,166) (1,923,166)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 679,375 679 3,833,132 (1,619,675 2,214,136
Issuance of Common Stock 81,889 82 237,418 237,500
Conversion of Debt Securities 226,757 227 400,979 401,206
Amount attributable to conversion feature 750,000 750,000
Net loss -- -- -- (1,718,402) (1,718,402)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 988,021 988 5,221,529 (3,338,077) 1,884,440
Issuance of Common Stock 2,867,246 2,867 1,531,293 1,534,160
Retirement of treasury stock (71,705) (71,705)
Net loss (1,815,854) (1,815,854)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 3,855,267 $ 3,855 $ 6,681,117 $(5,153,931) 1,531,041
=========== =========== =========== =========== ===========
Less-Note receivable (160,000)
-----------
Total $ 1,371,041
===========
</TABLE>
Note - All amounts give retroactive effect to a 1 for four reverse stock split
effected June 29, 1998.
See Notes to Consolidated Financial Statements
33
<PAGE>
LAMINAIRE CORPORATION
(Formerly THERMO-MIZER ENVIRONMENTAL CORP.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACQUISITION OF LAMINAIRE CORPORATION AND NATURE OF BUSINESS
Laminaire Corporation (formerly Thermo-Mizer Environmental Corp.) (the
"Company" or "Laminaire"), a Delaware corporation based in Rahway, New Jersey,
designs, assembles and sells a family of products and systems used in cleanroom
facilities and to monitor a wide variety of environmental conditions.
On October 16, 1997 the Company acquired all of the outstanding shares of
Common Stock of Laminaire Corporation ("Old Laminaire"), a New Jersey
corporation, from Garay LLC for a purchase price of $3,228,000, after adjustment
based on Laminaire's operating performance during the period immediately prior
to the acquisition. Laminaire, based in Rahway, New Jersey, manufactures and
distributes cleanroom products and also produces a variety of electronic circuit
boards. The purchase price consisted of a cash payment of $1,000,000, a
convertible promissory note in the principal amount of $2,200,000 (the "First
Note") and a promissory note with a principal amount $28,000(the "Second Note")
(see Note 6).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's principal accounting and financial reporting
policies is as follows:
Basis of Presentation
The Company discontinued its Control Systems ("TCS") Division and product
line in June 1998 because of ongoing operating losses and the estimated
requirement for future investment in research and development was not deemed an
effective use of the Company's limited resources. Prior to the acquisition of
Old Laminaire, all of the Company's revenues and operations related to and were
generated by TCS. The Company has restated its prior financial statements to
present the operating results of TCS as a discontinued operation (see Note 9).
All results of operations prior to October 17, 1997 are reflected as
Discontinued Operations because TCS represented all of the Company's operating
activities in that period. The remaining operating assets and liabilities of TCS
at December 31, 1998 are included in the caption "Net Liabilities of
Discontinued Operation" and are stated at their estimated net realizable value.
The Company declared a four-for-one reverse stock split on June 29, 1998.
All share and per share amounts in the accompanying consolidated financial
statements and notes thereto give retroactive effect to such reverse stock
split.
The Company changed its name from Thermo-Mizer Environmental Corp. to
Laminaire Corporation in June 1998.
34
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Old Laminaire (a New Jersey Corporation), which
was acquired on October 17, 1997 in a transaction accounted for as a purchase in
accordance with the requirements set forth in Opinion No. 16 of the Accounting
Principles Board. Accordingly, the results of Laminaire's operations are
included in the Company's consolidated financial statements commencing with the
date of acquisition. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The following unaudited pro forma operating data assumes that the
acquisition of old Laminaire had taken place as of the beginning of July 1, 1997
(for the six months ended December 31, 1997) and the year ended June 30, 1996
(fiscal 1997), respectively. The data combines the operating results of the
Company's fiscal year with corresponding data from old Laminaire's calendar year
and gives effect to (i) the amortization of purchase adjustments and goodwill
and (ii) incremental interest expense associated with the financing
arrangements. No effect has been given to assumed cost savings brought about by
the consolidation of the two entities.
12/31/97 Fiscal 1997
(6 months)
Net revenues $4,500,550 $8,777,632
Cost of sales 3,623,487 6,635,974
Gross profit 877,063 2,141,658
Operating expenses 1,691,811 3,322,865
Nonoperating expenses 917,510 480,221
Income (loss) before taxes -1,732,258 -1,858,292
Income taxes-net 4,497 19,607
Net income (loss) -1,736,755 -1,877,899
Revenue Recognition
Revenue for product sales is recognized in the period in which the product
is shipped. Contract revenues and profits are recognized on a
percentage-of-completion basis using the cost-to-cost method under which sales
and profits are recorded based on the ratio of costs incurred through the
measurement date to estimated total costs at completion. At December 31, 1998
unbilled receivables were not significant.
Revisions to contract estimates of revenue and profits are reflected in the
earnings of the period in which the revisions are made. Anticipated losses on
contracts-in-progress are charged to earnings when identified.
Inventories
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out cost flow assumption. At December 31, 1998,
inventories consist of:
Raw materials and components
$208,352
Work-in-progress 213,868
Finished goods 112,762
--------
Total $534,982
========
35
<PAGE>
Finished goods represent products purchased from outside vendors for
distribution to customers.
Property, Plant and Equipment
Property. plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using straight-line and accelerated
methods based upon the estimated useful lives of the related assets as follows:
Building and improvements 30 years
Furniture and fixtures 5 years
Vehicles 5 years
Machinery and equipment 5-7 years
Expenditures for repairs and maintenance are charged to expense as
incurred. Upon retirement, sale or other disposition of property and equipment,
the cost and accumulated depreciation are eliminated from the accounts and gain
or loss is included in operations.
Goodwill
Goodwill, which represents the excess of the purchase price for Old
Laminaire over the fair value of the net assets acquired, is being amortized on
the straight-line basis over 40 years.
Long Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable. If required, impairment losses on assets to be held and used
are recognized based on the excess of the asset's carrying value over its fair
value. Long-lived assets to be sold are reported at the lower of carrying amount
or fair value reduced by estimated disposal costs.
Statement of Cash Flows
Interest paid for the year ended December 31, 1998, the six months ended
December 31, 1997 and the fiscal year ended June 30, 1997 was $315,472, $76,847
and $22,697, respectively. Income taxes paid for the fiscal year ended June 30,
1997 was $19,207. For the purposes of this statement, investments and time
deposits having an initial term of 90 days or less are considered to be cash
equivalents.
Advertising
The Company charges advertising costs to expense as incurred. Costs related
to mail order catalogs and promotional materials are charged to operations when
mailed or distributed. Advertising costs related to continuing operations
amounted to $49,602 and $50,841 for the two periods ended December 31, 1998 and
1997, respectively.
Basic Loss Per Share
Basic loss per common and common equivalent share are calculated by
dividing net income by the weighted average number of common and common
36
<PAGE>
equivalent shares outstanding during the period, after giving retroactive effect
to the one for four reverse stock split effected in June 1998. The assumed
exercise of outstanding warrants and options would have been antidilutive and,
therefore, were excluded from the calculation of loss per share in all periods
presented.
Warranty Costs
The Company's policy is to warrant parts on new installations for one year
from start-up of the system. The cost of parts used in installations is
generally not a material component of the total installation costs. The
Company's policy is to accrue expenses related warranty costs when the related
revenue is recognized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. The principal assumptions inherent in the
accompanying financial statements relate to estimated percentages of contract
completion and the realizability of certain assets. Actual results may differ
from those estimates. All liabilities are recorded and carried at approximate
fair values.
Revenue and Credit Concentration
A significant portion of the Company's revenue is derived from contracts
performed for customers located in the New York and New Jersey Metropolitan
Area. Accordingly, a substantial portion of the Company's accounts receivable at
December 31, 1998 is due from customers located in the New York Metropolitan
area.
ReclassificationsReclassifications
Certain fiscal 1997 amounts and balances have been reclassified to conform
to the current presentation.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
Land and building $2,750,099
Furniture and fixtures 751,205
Machinery and equipment 483,645
Vehicles 31,508
----------
Total 4,016,457
Less - accumulated depreciation (1,825,559)
----------
Property and equipment - net $2,190,898
==========
37
<PAGE>
NOTE 4--OTHER ASSETS
Other assets consist of the following at December 31, 1998:
Deferred debt costs $88,642
Goodwill-net (notes 1 and 2) 1,804,450
Other 37,000
----------
Total $1,930,092
==========
NOTE 5--INCOME TAXES
The Company incurred a net operating loss for each of the year ended
December 31, 1998, the six months ended December 31, 1997 and for the fiscal
year ended June 30, 1997. The Company has established an allowance for the full
potential benefit of all such carryforwards because of doubt as to the
realizability of such benefit. The entire provision in all periods presented
relates to state franchise taxes and fees.
Deferred income taxes will be recorded for the net tax effects when
temporary differences arise between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. No deferred income taxes are recorded at December 31, 1998.
The Company has net operating loss carryforwards of approximately
$4,900,000 expiring in the years through 2013 and investment and research and
development credits amounting to $37,000 that are available to reduce future
income taxes through 2012.
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT
On October 16, 1997, the Company acquired all of the outstanding shares of
Common Stock of Old Laminaire from Garay LLC for a purchase price of $3,200,000,
subject to adjustment based on Old Laminaire's operating performance during the
period immediately prior to the acquisition. Garay LLC is an affiliate of
Charles Garay, who became a director of the Company following the acquisition of
Old Laminaire. The purchase price consisted of a cash payment of $1,000,000, a
convertible promissory note in the principal amount of $2,200,000 (the "First
Note") and a promissory note with a principal amount to be determined (the
"Second Note").
First, Second and Third Notes - The First Note bears interest at the rate of 10%
per annum and is payable in 60 equal monthly installments principal and interest
of $33,830 commencing November 16, 1997 with a final payment of principal of
$1,000,000 due on October 16, 2002. The First Note is convertible into shares of
Common Stock at a conversion price per share equal to $1. The First Note became
convertible for a period of two years commencing April 16, 1998 in amounts not
exceeding $500,000 for each four month period. The Second Note was in a
principal amount equal to the difference between (a) the Stockholders' Equity
(as defined) of Old Laminaire as of September 30, 1997 minus $200,000 minus (b)
the Stockholders' Equity of Old Laminaire as of September 30, 1996 or
approximately $28,000.
In conjunction with the acquisition of Old Laminaire, the Company issued a
promissory note to Charles Garay in the principal amount of $90,479 (the "Third
Note") to replace an existing liability due to Mr.
38
<PAGE>
Garay by the acquired company. The Third Note, and all accrued interest at the
rate of 15% per annum.
The Second and Third Notes were paid in October 1998.
The Company's obligations under the First Note are secured by first
priority security interests in the real property and all tangible and intangible
personal property, including inventory and accounts receivable, of Old
Laminaire. The security agreement underlying the First Note also contains
various financial ratios.
In conjunction with the acquisition of all of the outstanding common stock
of Old Laminaire, the Company paid all of Old Laminaire's obligations, amounting
to approximately $1,100,000, to Corestates National Bank ("Corestates") under a
mortgage secured by Old Laminaire's interest in its real property and building
located in Rahway, New Jersey.
The Company's operations have generated sufficient cash flow to service the
First Note, although no assurances can be given that this trend will continue
for the term of the First Note.
Other Financings - The funds in excess of those provided by the issuance of the
notes to Garay LLC utilized by the Company to purchase the common stock of Old
Laminaire and satisfy Old Laminaire's obligations to Corestates were obtained
from the issuance of (i) Common Stock of the Company for aggregate consideration
of $200,000 and (ii) convertible promissory notes and debentures for $2,300,000.
Subsequent to June 30, 1997 but prior to the closing of the Laminaire
acquisition, the Company issued convertible debentures (the "First Debentures")
to ten investors, in the aggregate principal amount of $1,450,000 pursuant to
Regulation S under the Securities Act of 1933, as amended, (the "Securities
Act"). Concurrent with the closing of the acquisition of Laminaire on October
16, 1997, the Company also issued 96,630 shares of its Common Stock to a single
investor for aggregate consideration of $200,000 pursuant to Regulation S under
the Securities Act and issued convertible debentures (the "Debentures") to three
investors in the principal amount of $300,000 pursuant to Regulation S under the
Securities Act. The Company will pay interest to the holders of the Debenture at
the rate of 5% per annum. Interest on the Debentures is payable in cash or
Common Stock of the Company, at the Company's discretion. The Debentures, which
are unsecured, became convertible into shares of the Company's Common Stock
beginning 41 days after the date of issuance, at a price per share equal to the
lesser of 70% of the average closing bid price for the five trading days
preceding: (i) the date of conversion or (ii) the date of closing, October 16,
1997.
Concurrent with the closing of the acquisition of Laminaire, the Company
issued a convertible promissory note (the "Convertible Note") to Norwood Venture
Corp. in the principal amount of $500,000 pursuant to Regulation D under the
Securities Act. The Company is obligated pay interest to the holders of the
Convertible Note at the rate of 12% per annum. The Company's obligations under
the Convertible Note were secured by a first security interest in the TCS
accounts receivable and a lien that is second in priority to that of Garay LLC,
the seller of the common stock of Laminaire, with respect to the inventory and
equipment of the Company and the accounts receivable, inventory and equipment of
Laminaire. Laminaire also executed a guaranty in favor of Norwood with respect
to the Company's obligations under the Convertible Note. The Convertible Note is
convertible into shares of the
39
<PAGE>
Company's Common Stock at any time at a price per share equal to the lesser of
70% of the average closing bid price for the five trading days preceding (i) the
date of closing or conversion. In June 1998, the Company discontinued the
operations of TCS, thereby affecting Norwood's collateral position. In November
1998, the Company agreed to substitute the common stock of Old Laminaire and a
second mortgage on the Rahway building for the TCS receivables as collateral
under the Norwood agreement. The Company has the right to substitute accounts
receivable in lieu of the common stock of Old Laminaire if certain conditions
are met. Furthermore, Norwood will relinquish its second mortgage on the Rahway
building if the Company refinances such building and uses the proceeds therefrom
to satisfy the First Note.
Through December 31, 1998, an aggregate of $1,410,000 of the principal
amount of the Debentures has been converted into Common Stock.
The obligations above (net of amounts converted through December 31, 1998)
are scheduled to mature as follows:
Year of Maturity Amount
1999 (current portion) $260,373
2000 408,282
2001 433,582
2002 1,368,655
Thereafter 40,000
----------
Total $2,510,892
==========
The Company also borrowed $200,000 from an individual investor. The terms
and conditions of such borrowing have not yet been finalized and, accordingly,
such note is classified as a current liability in the accompanying Consolidated
Balance Sheet at December 31, 1998.
NOTE 7--STOCKHOLDERS' EQUITY
The Company is a Delaware corporation. Its Certificate of Incorporation
provides that its authorized capital stock consists of 25 million shares of
Common Stock, par value $.001 per share. The holders of the Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. Holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor. The Board of Directors, without shareholder approval, could
issue shares of Common Stock upon such terms as it determines to whomever it
pleases, including persons who or entities that would help present management
maintain control.
The Company has issued shares of common stock to pay for various
consulting, professional and public relations services. At December 31, 1998,
$63,000 is included in prepaid expenses in connection with incomplete
engagements.
Stock Options
In December 1996 and June 1998, the shareholders approved stock incentive
plans under which the Company may issue incentive stock options, nonqualified
stock options and stock appreciation rights under which the Company can issue
options for up to 1,000,000 shares. As of December 31, 1998, the Company has
granted options covering 114,000 shares of Common Stock, all of which are
vested.
40
<PAGE>
In June 1997, the Company issued stock options for 35,000, after
retroactive adjustment for the 1 for 4 reverse stock split declared in June
1998, shares of Common Stock exercisable at a price of $.40 per share in
consideration for services performed by outside directors in connection with the
acquisition of Laminaire. The difference between the exercise price and the
market price of these shares was accounted for as part of the acquisition price
of Laminaire (see Note 1).
The Company accounts for all options using the intrinsic value method in
accordance with Accounting Principles Board Opinion No.25, "Accounting For Stock
Issued To Employees" and its related interpretations. Effective with fiscal
1997, the Company is subject to the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation" ("SFAS
123"). SFAS 123 establishes a fair value method of determining compensation
expense relating to stock-based compensation plans, and requires the disclosure
of the pro forma effects of recording such expense using the fair value method
rather than the intrinsic method. Under SFAS 123, the fair value of stock-based
awards to employees is calculated using option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's pro forma
calculations were made using the Black-Scholes option pricing model with the
following assumptions:
Risk-Free Interest Rate 9%
Dividend Rate 0%
Expected Term of Option In Years Five years
On a pro forma basis, net loss and loss per common share for the year ended
December 31, 1998, six months ended December 31, 1997 and for the fiscal year
ended June 30, 1997 would not have changed significantly if the Company had
accounted for options using the fair value method rather than the intrinsic
value method.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Description Number Price Range
<S> <C> <C>
Year Ended June 30, 1997:
Options granted 1,286,000 $.10 to $1.00
Options exercised 400,000 $1.00
Options cancelled 55,000 $1.00
Options outstanding 831,000 $.83 to $1.00
Six Months Ended December 31, 1997:
Options granted 565,000 $.20 to $.57
Options exercised
Options cancelled 17,250 $1.00
Options outstanding 1,378,750 $.20 to $1.00
Year Ended December 31, 1998
Options granted
Options canceled 174,000 $1
Options outstanding 1,204,750 $.20 to $.57
</TABLE>
All options outstanding are exercisable at December 31, 1998.
41
<PAGE>
Solay Agreement
On July 30, 1996, the Company entered into a one-year financial consulting
agreement with Solay, Inc. ("Solay") under which Solay agreed to provide the
Company with financial public relations and acquisition-related services in
consideration for a payment of $165,000 and an option (the "Option") granting
Solay the right to purchase 550,000 units at an exercise price of $1 per unit.
Each unit consists of one share of common stock and two Class B warrants. Each
Class B warrant entitled the holder thereof to purchase one share of common
stock at an exercise price equal to the greater of (i) $3 per share or (ii) 120%
of the offering price of a share of common stock in a secondary public offering
which results in gross proceeds of at least $3,000,000. The Class B warrants
were exercisable for a period of five years commencing on the earlier of (i) one
year from the date that the option was granted or (ii) the consummation of an
acquisition, as defined, by the Company. The Company registered all securities
covered by the Option in a Registration Statement on Form S-8. In February 1997,
the Company and Solay agreed to modify the terms of the option such that it
cancelled 470,000 previously issued Class B Warrants and Solay's right to
purchase 30,000 Class B Warrants and issued an aggregate of 100,000 shares of
Common Stock (one share of Common Stock for each five Class B Warrants).
Solay was entitled to exercise options for up to 300,000 shares, of which
it exercised such option for 260,000 such shares, including 160,000 for which it
issued a note to the Company in the principal amount of $160,000. The note is
interest-free and is nonrecourse to Solay, except to the extent that the former
president of the Company repays a note due by such former president to Solay.
The Option expires five years from the date of grant. Solay granted an
irrevocable proxy to vote all shares purchased and held by Solay pursuant to the
Option to the Company's President. Such proxy terminates at the time that the
shares are sold, exclusive of a transfer pursuant to a pledge of the shares.
As part of the agreement with Solay, Nationwide Securities, Inc.
("Nationwide"), the underwriter for the Company's initial public offering in
March 1996, agreed to terminate the underwriting agreement effectively
eliminating all restrictive covenants set forth therein and severing the
relationship between the Company and Nationwide. Accordingly, the Company also
wrote off the unamortized portion, amounting to $100,000, of the Nationwide
consulting agreement during the fiscal year ended June 30, 1997.
The Company issued nonqualified options for 180,000 units to officers and
directors. The units covered by these nonqualified options are identical to the
units included in the Option issued to Solay, except that they were exercisable
at estimated fair market value at the date of grant ($1.16). The Class B
Warrants included in such units were treated in the same manner as the Class B
Warrants included in the Solay agreement described above. The conversion of the
Class B Warrants results in the exercise price per share becoming $.83.
For financial reporting purposes, the Company ascribed a value of $.05 to
each Class B Warrant. The aggregate difference between the fair market value of
a share of common stock on the date of grant ($1.0623) and the value ascribed to
each share of common stock included in the units described above ($.90) for the
Solay Options amounts to $89,375 and was accounted for as an expense during the
fiscal year ended June 30, 1997. There are no remaining unamortized costs
associated with the Solay Agreement.
42
<PAGE>
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company's management does not believe that its products are subject to
material product liability claims and has no insurance to cover such risk.
The Company has a qualified 401(k) profit sharing plan available to
full-time employees who meet the plan's eligibility requirements. The plan
permits participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. In addition, the Company has no
obligation to contribute to the plan, however, it can elect a discretionary
contribution. The Company made no contributions to the plan during the year
ended December 31, 1998, six months ended December 31, 1997 and the fiscal year
ended June 30, 1997.
The Company is a defendant in various cases involving collection of
payables and employment terminations. The Company does not believe that the
outcome of these matters will have a material adverse impact on its results of
operations.
43
<PAGE>
NOTE 9--BUSINESS SEGMENTS AND CONCENTRATION OF CREDIT RISK
Segments
Prior to the acquisition of Old Laminaire, the Company had one business,
the controls system business. In the period immediately following the
acquisition of Laminaire, the Company operated with four divisions - Cleanroom
Manufacturing ("CM"), Cleanroom Distribution ("CD"), Electronic Manufacturing
("EM"), and TCS. The LM business represents Low Margin cleanroom distribution
sales involving transactions in which the Company served as a distributor for
vendors that only sell through distributors. In these cases the products were
drop shipped by the vendor to the end customer. A substantial portion of this
segment of the business has been phased out. TCS' operations were discontinued
in June 1998 because of ongoing operating losses and the estimated future
investment in research and development was not deemed an effective use of the
Company's resources.
The Company's largest customer accounted for 10.2% of its net revenues from
continuing operations during the year ended December 31, 1998.
The table below sets forth the sales and operating profits contributed to
continuing operations by division for the year ended December 31, 1998. All of
these operating divisions share the same facility and use a common
administrative pool. These joint costs have been allocated using various
formulas developed by the former management of Old Laminaire. The Company is
currently reviewing the allocation bases being used and may revise or modify
such bases.
<TABLE>
<CAPTION>
1998
----
CM CD EM Total
<S> <C> <C> <C> <C>
Revenues $ 2,264,772 $ 2,360,329 $ 1,403,892 $ 6,028,993
Cost of revenues 2,081,280 1,762,551 1,011,123 4,854,954
Gross profit 183,492 597,778 350,029 1,174,039
Direct selling 100,104 173,825 42,740 316,669
Contribution 83,388 423,953 350,029 857,370
Joint overhead costs 884,923
Operating loss $ (27,553)
<CAPTION>
1997
----
CM CD EM
<S> <C> <C> <C>
Revenues $ 520,523 $ 740,369 $ 501,686
Cost of revenues 362,185 670,126 324,698
Gross profit 158,338 70,243 176,988
Direct selling and product development 44,611 45,004 49,583
Contribution 113,727 25,239 127,405
Joint overhead costs 99,361 56,430 100,058
Other costs 9,285 3,483 7,813
Income (Loss) before taxes 5,081 (34,674) 19,534
</TABLE>
44
<PAGE>
Many costs are allocated based on various allocation bases including
relative sales and square footage used. It is not practicable to ascribe assets
to specific divisions.
Discontinued Business
Prior to the acquisition of Old Laminaire, the Company had one business,
the controls system business. TCS' operations were discontinued in June 1998
because of ongoing operating losses and the estimated future investment in
research and development was not deemed an effective use of the Company's
resources. Highlights of TCS operating results for the year ended December 31,
1998, the six months ended December 31, 1997 and the fiscal year ended June 30,
1997 are set forth below:
12/31/98 12/31/97 6/30/97
Revenues $1,476,833 $1,124,869 $ 2,351,191
Cost of revenues 1,451,261 1,057,757 2,099,873
Gross profit 25,572 67,112 251,318
Other costs 804,888 923,933 1,676,624
Operating loss (779,316) (856,831) (1,425,306)
Other - net 32,508 497,860
Loss from discontinued business $ (779,316) $ (889,339) $(1,923,166)
The amounts above relate to operating results prior to the date of
discontinuance. All results thereafter are included as part of the closedown
costs of TCS. Operating expenses for the year ended December 31, 1998 do not
include corporate, facilities and similar type expenses that have been charged
to continuing operations.
The Loss on Disposal of the Discontinued Operations of $611,570 consists
principally of write-downs of inventories, receivables on certain long-term
contracts, other assets and fixed assets, as well as the costs to complete
contracts-in-progress.
NOTE 10--NONRECURRING EXPENSES AND OTHER
Nonrecurring expenses and other consist of the following for the year ended
December 31, 1998, the six months ended December 31, 1997 and the fiscal year
ended June 30, 1997.
<TABLE>
<CAPTION>
12/31/98 12/31/97 6/30/97(1)
<S> <C> <C> <C>
Solay agreement $ 294,375
Write-off - Nationwide consulting agreement 95,000
Postemployment cost $ 25,000 40,000
Professional fees associated with nonrecurring
transactions 67,510
Amortization of discount associated with the
favorable conversion feature
$ 750,000
Amortization of goodwill 46,378 11,115
Interest - net 326,037 89,584 (43,436)
Disposal of equipment (and write-off of lease
obligation) 27,756
Write-off of lease costs (Note 8) (1) 28,019
Other (2,552)
---------
Total $ 397,415 $ 878,718 $ 478,653
========= ========= =========
</TABLE>
45
<PAGE>
(1) Amounts are included in Discontinued Operations
The Company agreed to purchase an annuity for an officer who retired during
the fiscal year ended June 30, 1997, the cost of which ($40,000) was charged to
operations.
NOTE 11--RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998, the six months ended December 31,
1997 and the fiscal year ended June 30, 1997, the Company paid professional,
consulting and legal fees amounting to $250,143 (exclusive of 100,000 shares of
common stock awarded to the Company's secretary), $217,675 (of which $126,180
relates to the acquisition of Laminaire or obtaining the financing therefor);
and $332,953(of which $153,924 relates to the acquisition of Laminaire or
obtaining the financing therefor) to directors or firms related to directors or
officers. The law firm in which the Company's Secretary is a partner also
received 41,000 shares of common stock in satisfaction of fees owed during
fiscal 1997. At December 31, 1998, the outstanding balance of unpaid fees due to
such firm was approximately $101,000. Substantially all work done on a
consulting basis is in lieu of the same work being done by new employees or
other directors.
In addition, an entity associated with a director received interest
payments of $233,402 in 1998.
46
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet at December 31, 1998 and the Statement of Operations for
the fiscal year then ended and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> $79,785
<SECURITIES> 0
<RECEIVABLES> 724,925
<ALLOWANCES> 68,039
<INVENTORY> 534,982
<CURRENT-ASSETS> 1,396,705
<PP&E> 4,016,457
<DEPRECIATION> 1,825,559
<TOTAL-ASSETS> 5,517,695
<CURRENT-LIABILITIES> 1,896,135
<BONDS> 0
0
0
<COMMON> 3,855
<OTHER-SE> 1,367,186
<TOTAL-LIABILITY-AND-EQUITY> 5,517,695
<SALES> 6,028,993
<TOTAL-REVENUES> 6,028,993
<CGS> 4,854,954
<TOTAL-COSTS> 1,201,592
<OTHER-EXPENSES> 81,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315,472
<INCOME-PRETAX> (424,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> (424,968)
<DISCONTINUED> (1,390,886)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,815,854)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> 0
</TABLE>
